7/01/2010 @ 5:28PM

Tony Hsieh On His Secrets Of Success

When Tony Hsieh was 24 he sold a business he had cofounded, LinkExchange, to
Microsoft
for $265 million. A short time later he became an investor in, and then the chief executive officer of, a small online shoe company with gross merchandise sales of $1.6 million: Zappos.com. Thanks in large part to its unique focus on the customer, Zappos grew dramatically. In fact, within a decade it had over $1 billion in gross merchandise sales, and it was acquired by Amazon. These days Zappos is widely cited as one of the world’s most admired companies. I recently spoke with Tony about his remarkable focus on customer service and culture, and his success.

What lies behind Zappos’ dramatic growth?

Zappos stands for one thing, the absolute best customer service. We started out selling just shoes online, but today we sell handbags and apparel and even housewares and pots and pans, and hopefully 10 years from now people won’t even realize we started out selling shoes. They will just think about Zappos as a place to get the best customer service.

How do you accomplish that with an online store?

We get 95% of our orders through our website, Zappos.com. With most websites, it’s hard to find how to contact the customer service people. We take the opposite approach. We actually want to talk to our customers. Our 1-800 number is staffed 24-7, and it’s displayed on the top-left corner of every single page of our website. We have found that on average every customer contacts us at one point, so we place a lot of value on that interaction. When people call our call center, our reps don’t have scripts, and they don’t try to up-sell. They are just judged on whether they go above and beyond for the customer and really deliver a kind of personal service and emotional connection with our customers. For example, if we don’t have what the customer wants, we’ll actually recommend at least three competitor websites and direct the customer to a competitor if they find the shoe. That’s just about us being true to our vision about being known for customer service, even though it may seem counterintuitive in the short term.

Buying shoes online can be pretty scary for most people, because you’re not sure if the shoes will fit or if they’ll look good with the outfit you plan to wear them with. So we offer free shipping both ways. Also, our return policy is 365 days, and we run our call center 24-7. We run our warehouse 24-7, which is not the most efficient way to run a warehouse but it gets the shoes out to the customers as quickly as possible.

All those things are very expensive, but we think of them as basically our marketing dollars. We take most of the money that we could have spent on paid advertising and instead put it back into the customer experience. Then we let the customers be our marketing. Historically, our number-one growth driver has been from repeat customers and word of mouth.

As CEO, what’s your primary focus?

Company culture. We focus on making sure we have a great service-focused culture. If you get the culture right, then a lot of really amazing things happen on their own.

Our hiring process is different from most companies’. We actually do two different sets of interviews. There is the first, which is the standard stuff for technical ability, experience and fit with the team. But then our human resources department does a separate set of interviews purely for culture fit, and you have to pass both in order to be hired. We’ve rejected many talented people who we know would have made an immediate impact on our top or bottom line. Because culture is our number one priority, we’re willing to give up short-term profits or revenue growth to make sure we have the best culture. In fact, after orientation we offer people $2,000 not to work at Zappos. The ones who stay are right for our culture.

We have 10 core values, and when we hire people, we make sure they have similar values. For example, one of our values is to be humble. If someone comes in and is really egotistical, even if they are the greatest, most talented person technically and we know they could do a lot for our top or bottom line, we won’t hire them, because they’re not a culture fit.

Basically, I believe that at any company what the actual culture is doesn’t really matter. What’s important is that it’s a strong culture and that it’s consistent throughout the entire company.

What is the secret to success for an entrepreneur?

The first thing is to have a vision that’s meaningful to both employees and customers. For Zappos it’s about customer service. You need to be truly passionate about your business. The goal shouldn’t be just to make money; I think you need to figure out something you would do even if you didn’t make any money from it. You’re going to have hard times growing your business, and if you’re passionate about it, that’s what’s going to get you through those hard times.

People, employees or customers, can really sense your passion about something. Your number-one goal really shouldn’t be money. It should be something you are passionate about, something that has meaning. Then the money will follow. I like to say, Chase the vision, not the money. That’s why I wrote Delivering Happiness: A Path to Profits, Passion, and Purpose. It shares a lot of the lessons I’ve learned so everyone can make their workplace happier and, in turn, profitable.

What do you do when you hit a wall?

A lot of tough times, looking back, are blessings in disguise. If you don’t have the funding, it forces you to figure out, on your own, creative solutions to keep the company going. When we started out, we spent a lot of money on paid advertising, trying to get our name out there. And then when we couldn’t get funding, we realized that we couldn’t afford to do that anymore, so we were forced to think of better ways to get customers to come back to us again and again, not through paid advertising. That was what led us to focus on giving the very best customer service.

Robert Reiss is host of The CEO Show, which is nationally syndicated by Business TalkRadio Network. This article was adapted from an interview that aired on The CEO Show. To hear podcasts of this and other CEO interviews, visit The CEO Show’s website.